Real Estate Financing...

Mortgage Troubles Are Rising?                                                                       

Ahhh, the dream & satisfying vision of homeownship.  Yet, like anything else, the ugly other side is ever present.  The financial crisis of a foreclosure is perhaps the hardest financial hit somebody can sustain...losing their home.

Is the crisis in house foreclosures good news or bad news?  For homeowners in that position it is obviously the latter.   For savvy real estate investors, the answer may just be the former.

I'll also address that question in two ways;

(1) Whenever there is chaos in the marketplace, you can be sure that someone is making a lot of money. Entrepreneurs of any business, including real estate often rely on chaos: whether it's a seller unwittingly under pricing the value of a property, a property being heavily discounted because of perceived problems or someone who's willing to sell cheap because of the urgency of the moment. Chaos is what brings  opportunity.

(2) What the headlines involving foreclosures across the nation tells me is that there is an enormous opportunity right now for picking up lots of pre-foreclosure deals. And that's not a surprise. Yes, this is good news....for real estate investors, especially in the face of the notions of a real estate bubble which lurk on every newstand and television program around. 

                                                                   


Nationally, about 30% of all homes are being financed with adjustable rate mortgages.  The % of those that got into them for all the wrong reasons is a whole other topic but the regardless, the facts are there are a lot of people in a high risk mortgage situation.   Adjustable rate mortgages are often offered with a low teaser rate, but after a year or two or three, the teaser rate ends and the interest rate begins floating with the market. As it floats up (as it has been recently), the monthly mortgage payment begins increasing and eventually increases to the point where the homeowner can no longer afford the payments. It's a predictable outcome. One that is now beginning to play itself out.

Up until the recent downturn in the market, homeowners could just sell their home when this happened. The market was so hot and prices were rising so fast, that selling the home was an easy, quick solution.

Not so now. Prices have softened, houses are staying on the market longer and many times, the homeowner doesn't even have enough equity to pay for the closing costs of selling the home, much less the time to afford waiting for a sale. 

I read that in Phoenix last month, notice of trustee sales (foreclosure notices) were up almost double from April. And the foreclosure problem is only beginning.   California, Florida, New York, and others are probably going to feel a lot of this wrath as well.  My guess is, the savvy investors will prey upon circumstance, on chaos.  And what can we learn of a very terrible situation many people may be facing in losing their properties?  One, to continue to inform and walk ethical lines in setting up consumers in mortgage that not only fit into their financial needs now, but 5 to 10 years from now.  Two, make sure we are educated in the products we are offering.  Come on, let's be honest, how many brokers/lenders had a clue of what the Pay Option Arm was all about when making those loans?  The budding rate of foreclosure while good news for the savvy real estate investor, bad news for the individual/family feeling its brunt, and a reality check on the true importance of our role in making sure clients are armed with a true professional in every transaction.